Outside Editorial: A $1.2 billion mystery

With the investigation into the collapse of MF Global still dragging on, thousands of farmers and ranchers around the Midwest are wondering whether they will ever recover their lost money.

This is the case of the commodities brokerage run by former New Jersey Gov. Jon Corzine, who told Congress he had no idea what happened to $1.2 billion in customer accounts.

Customer accounts at a brokerage are supposed to be segregated, separate from the firm’s trading on its own account. Yet in the MF Global case, the customer money was missing — and its absence represents a severe blow to the integrity of the financial markets. Harold Bradley, chief investment officer at the Kauffman Foundation, said what happened at MF Global was “the most insidious attack on the financial markets in 30 years.”

He wondered why the market clearing system of the various exchanges failed to protect MF Global’s clients — a question shared by Lynn Wagnon, a commodities broker in Coldwater, Kan.

“The clearing system is supposed to be monitoring those funds daily to make sure the segregated funds are there,” he said. “I don’t understand why somebody is not in jail.”

Progress on the case has been frustratingly slow. The New York Times reported the trustee for the now-bankrupt MF Global — charged with recovering money for the brokerage’s creditors — is at loggerheads with the trustee for the client accounts, who must recover money for the customers.

Some of MF Global’s 38,000 clients have received a part of their money, but others have not. Wagnon said his brokerage is owed about $450,000, and his business dropped last year because people had lost faith in the system.

The Commodity Futures Trading Commission should press investigators to quicken their pace into finding out what happened to the segregated customer money while doing more to keep MF Global clients updated on the prospects of recovering their funds.